CHAN YI PANG AND OTHERS v. SIN YUK LING AND OTHERS

HCA 215/2015

[2019] HKCFI 65

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 215 OF 2015

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J U D G M E N T

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Background

1.  The 1^st Plaintiff (“Chan”) and 2^nd Plaintiff (“Wife”) by original action are husband and wife, and the directors and shareholders of the 3^rd Plaintiff, a Hong Kong company (“Lucky”).  The 1^st Defendant (“Irene”) was a former client, and at one stage, a close friend of Chan and Wife - jointly owning properties in Hong Kong and sharing a trusted relationship which has now completely broken down.  The 2^nd Defendant is Irene’s son (“Son”) and the 3^rd Defendant is Irene’s daughter (“Daughter”).

2.  These proceedings were commenced by Chan and Wife against Irene and her children for alleged fraudulent misrepresentation, conspiracy, collusion and alleged breach of contract, relating to an investment made by Chan and Wife for the purposes of their emigration to Australia in 2012. Chan claims that he had agreed to acquire from Irene, for HK$38.5 million, a retail jewellery business in Sydney, Australia which was owned by the Son and operated by the Daughter, on the basis of fraudulent misrepresentations made by Irene.  In these proceedings, Chan and Wife claim rescission of the agreement, recovery of various landed properties in Hong Kong which had been transferred to or charged in favor of Irene pursuant to the agreement, restitution of HK$4,425,000, and damages of HK$20 million.

3.  The basis of the Plaintiffs’ claims must and can only be found in the Amended Statement of Claim (“SOC”), and this has been made the subject of severe criticism by Mr Chong, Counsel for the Defendants.

The pleaded claims

4.  According to Chan, he and his Wife were planning in early 2012 to send their children to study in Sydney and to accompany them there.  For that purpose, they had to apply for visas and were contemplating emigration to Australia.  Irene suggested that Chan and Wife should purchase the Son’s jewellery business in Sydney, known as Grand Jewellery 富生鑽金店 (“Business”), as this would facilitate Chan’s investment migration, and so that their children as permanent residents of Australia could enjoy local student tuition fees.    

5.  As pleaded in the SOC, Chan and Wife claim that they orally agreed with Irene, Son and Daughter on 6 April 2012 (“Oral Agreement”) that Chan and Wife would purchase, and the Son would sell the Business for the total consideration of HK$38.5 million (“Consideration”).  Instead of an outright payment of the Consideration, whether in stages or by installments,     the Consideration was funded by a complex series of transactions.  This is as pleaded in paragraph 12 (1) and (2) of the SOC.  In gist, the arrangement agreed between the parties was as follows:

(1)  HK$28.5 million of the Consideration was to be satisfied by Chan and Wife assigning and transferring to Irene 1^st-3^rd floors, 345 Shau Kei Wan Road (jointly owned by Chan and Wife) and Flats 3B and 4B, 347 Shau Kei Wan Road (owned by the 4^th Defendant (“Brightin”)) (“SKW Properties”); Chan was to transfer his shareholding in Brightin to Irene as part of the HK$28.5 million;

(2)  HK$10 million of the Consideration was to be satisfied by Chan and Wife with a loan of HK$9.9 million from Irene (“Loan”), at 2% interest per annum.  The Loan was to be secured by a mortgage in favor of Irene against the properties owned by Chan and Wife at GB and 1B, 8 Shan Kwong Road, Happy Valley (“Happy Valley Properties”); and

(3)  HK$100,000 was to be paid in cash by Chan and Wife.

6.  At the same time and as part and parcel of the Oral Agreement, it was agreed that some jewellery stock to the value of HK$8.5 million would be consigned to Chan and Wife upon the transfer of the Business to them (“Consignment”).The Consignment would be secured against further properties of Chan and Wife at Flat 7, 5^th floor, King Cheung Mansions, 5 King Kwong Street, Happy Valley and another property of Chan’s mother-in-law (“Wong”) at Flat 10, 2^nd floor, King Cheung Mansions, 5 King Kwong Street, Happy Valley (“KK Properties”).

7.  According to the SOC, the assignment and transfer of the SKW Properties and the Happy Valley Properties, and the mortgage security against the KK Properties, were all to be completed by 31 May 2012, and upon such completion, the Business was to be transferred to Chan and Wife by 10 September 2012 (paragraph 14, SOC).

8.  The Oral Agreement was evidenced by a Chinese agreement in writing for sale and purchase dated 6 April 2012 (“2012 Agreement”).  This was a homemade agreement, apparently prepared by Chan, entitled “Hong Kong Properties and Australian Jewellery Business Sale and Purchase Agreement”.  It refers, in paragraph 1, to the sale of the SKW Properties to Irene at a price of HK$31.5 million, the net value of which is stated to be HK$28.5 million, after taking into account repayment of the mortgage on the properties of about HK$3 million.  Paragraph 2 refers to the Son’s ownership of the company shareholding of the Business (“富生鑽金店公司股權”), and the sale thereof to Chan or his nominee, together with the tools, equipment and jewellery at the price of HK$38.5 million (inclusive of “key money” and the value of tools and equipment of the shop of HK$8 million, and the wholesale price of the jewellery and gold ornaments of HK$30.5 million).  Paragraph 3 of the 2012 Agreement refers to Irene’s personal loan to Chan and Wife of HK$9.9 million, to be repaid within 24 months, at interest, secured by the Happy Valley Properties.  The 2012 Agreement also refers (in paragraph 4) to the Consignment of jewellery of a value of HK$8.5 million, secured by the KK Properties.  Paragraph 5 refers to the completion of the sale and purchase of the landed properties by 31 May 2012, and the completion of the sale and purchase of the “company shares of the Business” (“富生鑽金店公司股權”) by 10 September 2012.

9.  The transfers and assignments of the different landed properties were duly completed.  However, a further series of transactions and contracts followed.

10.  Upon the Chans’ arrival in Australia, they arranged for Lucky Success Australia Pty Ltd, an Australian Company (“Lucky Australia”) to be incorporated to take over the Business, and (according to Chan) it was then learned that the Business was held by the Son through a company known as Jasny Pty Ltd (“Jasny”).  Under legal advice, a contract for the sale of the Business dated 22 August 2012 (“Contract”) was signed by Jasny, Irene, Son, Lucky Australia and Chan, for the sale of the Business by Jasny as vendor and Lucky Australia as purchaser, at the stated price of AU$300,000.

11.  The Plaintiffs claim that it was an implied condition of the Oral Agreement that the Defendants were to secure for the Plaintiffs the consent of the landlord to transfer the lease of the premises of the Business (“Lease”) to them (paragraph 15, SOC).  They also claim (in paragraph 42 of SOC) that it was an express term of the Contract that completion of the transfer of the Business was subject to and conditional upon obtaining the consent of the landlord to the transfer of the Lease. 

12.  The Plaintiffs claim that in breach of the terms of the 2012 Agreement (ie the Chinese agreement signed), the Defendants failed to transfer or hand over the Business to Chan and Wife on 10 September 2012 (paragraph 38, SOC), and that they were in further breach of the implied condition of the 2012 Agreement, in failing to transfer the Lease simultaneously with the transfer of the Business (paragraph 39, SOC).  The conditions imposed by the landlord for the transfer of the Lease were never satisfied, such that the landlord’s consent to the transfer of the Lease was never obtained.

13.  Chan and Wife claim that on 10 September 2012, the Daughter had handed over to them the stock of the Business, purported to be valued at HK$30.5 million (“Stock”), but that in fact and in truth, the jewellery comprising the Stock was worth only HK$20,060,096.16, approximately. Hence, Chan and Wife claim that the Daughter had fraudulently misrepresented the value of the Stock handed over on 10 September 2012 (paragraph 35, SOC), and that all the Defendants were in breach of the 2012 Agreement (paragraph 37, SOC).

14.  In respect of the Stock handed over on 10 September 2012, Chan and Wife also claim (paragraph 41, SOC) that over 70% of the Stock did not have any evidence of proof of purchase, was therefore not insurable, and that as the legitimacy of the Stock was in doubt, it was likely to give rise to tax evasion investigations and/or criminal charges brought by the Australian authorities.  (No evidence on any of this was adduced at trial.)

15.  Chan and Wife further claim (paragraph 40, SOC) that the Daughter had, between 15 September 2012 and 12 March 2013, misappropriated jewellery and consigned stock of jewellery of the Business worth around HK$4 million, all without the consent of Chan and Wife.

16.  It is not disputed that as a result of the landlord’s refusal to give consent to the transfer of the Lease, a Share Sale Agreement was made between the Son (as vendor) and Chan (as purchaser) on 28 November 2012 (“Share Sale Agreement”), for the sale of 40% of the shareholding in Jasny to Chan, at the stated consideration of AU$600,000.  There is no dispute that the Share Sale Agreement was completed.  On 8 November 2012, the Son and Chan had also signed a Supplemental Share Sale Agreement in Chinese (“Supplemental Agreement”), whereby it is stated that in order to protect Chan’s interests, the Son had signed an undated transfer of 60% of the shares in Jasny, for use as required.  The parties to the Supplemental Agreement stated therein that completion of the transfer (of the 60% of the shares) was provisionally to take place on 1 July 2013, conditional upon the consent of the landlord being obtained for the transfer of the shares in Jasny, and that such transfer was to be made for no more than AU$180,000.  It is not disputed by any party that the Supplemental Agreement in writing was signed.

17.  Nor is it disputed that the Contract (for the sale and purchase of the Business of Jasny) was rescinded with the parties’ consent on 6 December 2012.  The Plaintiffs claim, in paragraph 47 of the SOC, that they had rescinded the Contract by reason of the Defendants’ breaches, and that the Defendants had consented to the rescission.

18.  In February 2013, the Son and Chan signed a deed of variation (“Variation Deed”), whereby it was stated that the Share Sale Agreement was amended, and that the purchase price for the 40% of the shares in Jasny was varied to AU$120,000, from AU$600,000.  Again, this is not disputed.

19.  Chan and Wife claim, however, that Irene and the Son in conspiracy had dishonestly and fraudulently misrepresented to Chan (paragraph 49, SOC) that the transfer of the 40% of the shares in Jasny was the transfer of the entire shareholding of Jasny, and that the transfer of the Business had been duly completed, “when in truth and in fact it was fraudulent and was a common design with intent to defraud” Chan and Wife.

20.  Further or in the alternative, Chan and Wife claim (paragraph 55, SOC) that all the Defendants had acted in collusion, and had conspired together by deceit and fraudulent misrepresentations to induce Chan and Wife to enter into the 2012 Agreement and the Contract.  In paragraph 56 of the SOC, and under “particulars” of the alleged fraud/fraudulent misrepresentation, Chan and Wife simply repeat paragraphs 1 to 53 of the SOC.  Counsel for Chan and Wife rely on paragraphs 11A, 35, 45 and 49 of the SOC which refer to various representations, namely:

(1)  the representation made by Irene that the annual net profit of the Business amounts to at least AU $700,000 per year and the net profit of the Business in 2011 was over AU$1.3 million (“1^st Representation”);

(2)  the representation made by Irene that if the annual net profit could not reach such amount, Chan and Wife could return the Business to her (“2^nd Representation”);

(3)  the representation made by the Daughter that the Stock handed over to Chan on 10 September 2012 was worth HK$30.5 million at costs (“3^rd Representation”); and

(4)  the representation made by Irene, the Son and the Daughter to Chan and Wife that 60% of the shareholding of Jasny would be transferred to Chan at a time after the Variation Deed (“4^th Representation”).

21.  In addition, paragraph 57 of the SOC pleads 11 “fraudulent misrepresentations”, allegedly made “during the negotiations” in order to induce Chan and Wife to enter into the 2012 Agreement and the Contract, and “during the transfer of the Business”.  These include the 3^rd Representation and the 4^th Representation, but also other additional representations: that the Business was free from all debts, liabilities or encumbrances, that the Contract was for the sale and purchase of the Business (when it was in fact to assist the Defendants to evade Australian taxation), that the stock of the Business was purchased legitimately, that by transferring 40% of the shares of Jasny, the Business had been handed over to Chan and Wife, that the transfer of the Business was completed by the handover of the Stock in October 2012, and that the Business could be returned to Irene if Chan and Wife could not manage it, etc.

22.  On the basis of the alleged fraudulent misrepresentations, collusion, conspiracy and breach of agreements, Chan and Wife seek a declaration that the 2012 Agreement had been validly rescinded, that the SKW Properties be transferred back to them, that the securities over the Happy Valley Property and the KK Properties be discharged, and for damages and restitution.

23.  All the claims made by Chan and Wife are denied by Irene, the Son and the Daughter, who claim that the 2012 Agreement and the Contract had been performed, discharged, and/or rescinded by consent, and that there were no misrepresentations, collusion, or conspiracy as alleged.  By way of Counterclaim, Irene seeks repayment of the balance of the loans which she had extended to Chan and Wife under the 2012 Agreement and which remain outstanding and unpaid, and for an account of the jewellery which had been consigned to Chan and Wife at the time of the 2012 Agreement and pursuant to the transfer of the Business.

Relevant legal principles

24.  It has to be borne in mind that the claims made and relief sought by Chan and Wife are on the basis of fraud, fraudulent misrepresentations and dishonesty.  These are serious allegations, which should not be made unless the claims can be particularized and are supported by clear facts and evidence.  The standard of proof of such serious claims is also commensurate with the gravity of the allegations made.  The authorities are clear, that in civil cases involving allegations of the commission of a criminal offence, the tribunal of fact has to be reasonably satisfied of the facts sought to be established, having regard to its gravity, though not with the degree of certainty which is required in criminal proceedings (HKSAR v Lee Ming Tee (2003) 6 HKCFAR 336).  Inferences of fraud or serious misconduct are not to be reached by conjecture, nor on the mere balance of probabilities.  They have to be plainly established as a matter of inference from proved fact.  The court guards against drawing an inference where the primary evidence does not logically and reasonably justify such inference.  The court is not entitled to merely choose between guesses on the ground that one seems more likely than another.  (Ming Shiu Chung v Ming Shiu Shum (2006) 9 HKCFAR 334) As the court reminded all in Re H & Others (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563, “fraud is usually less likely than negligence”, and it should not lightly be inferred when there are other probable or more likely causes or explanations.

25.  The standard of proof, in the context of forgery, was explained in Re H & Others (Minors)(Sexual Abuse: Standard of Proof) [1996] AC 563 at 856, and cited in Nina Kung v Wong Din Shin (2005) 8 HKCFAR 387, at 560:

“The balance of probabilities standard means that a court is satisfied an event occurred if the court considers that, on the evidence, the occurrence of the event was more likely than not. When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in that particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely that negligence. … Build into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegations …

Although the result is much the same, this does not mean that where a serious allegation is in issue the standard of proof required is higher.  It means only that the inherent probability or improbability of an event is itself a matter to be taken into account when weighing the probabilities and deciding whether, on balance, the event occurred.  The more improbable the event, the stronger must be the evidence that it did occur before, on the balance of probability, its occurrence will be established.  Ungoed-Thomas J expressed this neatly in Re Dellow’s Will Trusts [1964] 1 WLR 451 at p 455: “The more serious the allegation the more cogent is the evidence required to overcome the unlikelihood of what is alleged and thus to prove it.”

26.  In the assessment of the exercise, I also bear in mind the observations made by Bokhary PJ in Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336, at 348:

“It is common to speak of a trial judge’s advantage of having ‘seen and heard’ the witnesses … The words ‘seen and heard’ are perhaps capable of giving an exaggerated impression of the role which demean a place in the resolution of disputes of fact – demeanour being, as Lord Pearce put it in Onassis v Vergottis [1968] 2 Lloyd’s Rep 403 at p 431, ‘mostly concerned with whether the witness appears to be telling the truth as he now believes it to be’. (Emphasis supplied)

Having said that about demeanour, I should make it clear that I accept that trial judges are entitled to take demeanour into account when assessing testimony. In life what really happened is not always what afterwards seems objectively probable. So demeanour has a role to play. Of course trial judges must bear in mind that demeanour can be deceptive and is therefore to be approached with care. In general, I would trust them to do that. Unless good reason to think otherwise appears, trial judges should be taken to have considered demeanour with caution, doing so only in the context of such inherent probabilities as may exist and the whole of the evidence.

It can of course happen that neither rival account is appreciably more inherently probable or improbable that the other, and there may be little or no evidence other that the testimony of the protagonists, each with an interest to serve.  In such a situation, there will be little or nothing for the fact-finding judge to go on apart from demeanour.”

27.  Beside the demeanour and credibility of the witnesses, other crucial considerations for the court include, of course, the inherent probability of the parties’ assertions, and whether these assertions are consistent with the parties’ conduct, the contemporaneous documents, and the undisputed or indisputable facts.  When considering the testimony of the witnesses in this case, I bear in mind that they are testifying as to events which took place in 2012 and 2013.  The accuracy of the memory of witnesses as to events 6 years ago has to be approached with some caution.  Comparison with contemporaneous documentation, if any, is often an aid to the reliability of oral testimony, unless there is reason to believe that the documentation is contrived or materially incomplete, or to have been tampered with.  Generally speaking, however, where the passage of time between events and trial is long, and where there is a host of contemporaneous documentation, it would usually be appropriate to place more reliance on contemporaneous documentation.

The relevant misrepresentations and whether the 2012 Agreement/Contract induced by misrepresentation

28.  Even if there was any misrepresentation as alleged, for such misrepresentation to be operative so as to entitle Chan and Wife to rescind either the 2012 Agreement or the Contract, I accept the submissions made by Counsel for the Defendants, and it is trite, that the misrepresentation relied upon must have induced Chan/Wife to have made the 2012 Agreement (entered into on 6 April 2012), and/or the Contract (dated 22 August 2012).

29.  By the time closing submissions were made, Counsel for Chan and Wife only focused on the 1^st Representation and the 2^nd Representation as being capable of amounting to fraudulent misrepresentations inducing the 2012 Agreement (paragraphs 2.1 and 2.2 of the Closing Submission for the Plaintiffs).  The 3^rd Representation, the 4^th Representation, and the other particulars of the alleged fraudulent misrepresentations set out in paragraph 57 of the SOC (in particular paragraph 57 (I), (II), (III), (V), (VII), (VIII), (XI)) were all made (even on the pleaded case of Chan and Wife) after the date of the 2012 Agreement, and could not possibly have induced the 2012 Agreement itself.  The Contract was made after the 2012 Agreement, so the representations could not have induced the Contract either.

30.  The particulars given in paragraph 57 (IV) and (V) do not constitute representations at all, and there are no particulars pleaded as to who had made the alleged representations referred to in paragraph 57 (II), (VI) and (IX), when the representations were allegedly made, or how they were allegedly false.  As Counsel for Irene also highlighted, there is no pleading as to the facts asserted in paragraph 57 being untrue, nor any pleading as to any intention not having been held at any material time, to make any representation as to intention being untrue.

31.  The pleading of the 1^st to 4^th Representations in the SOC set the background of not only the misrepresentation claim, but also the alleged breach of contract claim and the conspiracy/collusion claim.  Despite the reliance placed by Counsel at closing on the 1^st Representation and the 2^nd Representation as the basis of the misrepresentation claim made by Chan and Wife, I agree with Counsel for the Defendants that there is in fact no pleading in the SOC, that the 1^st Representation and the 2^nd Representation had induced either the 2012 Agreement, or the Contract, such that the 2012 Agreement or the Contract can be rescinded.  The only pleading as to the 2012 Agreement and the Contract having been induced by fraudulent misrepresentations is that made in paragraph 57.  There, the alleged misrepresentations relied upon are as to the value of the Stock of the Business at HK$30.5 million, that the Business was free from debts and liabilities, that the jewellery had been legitimately purchased, that the transfer of 40% of the shares of Jasny constituted the handover of the Business, and (at paragraph 57 (X), SOC) that the Business could be returned to Irene.  Only the last of the aforesaid particulars can be said to be remotely similar to the 2^nd Representation, but they are in effect different, even as pleaded. 

32.  According to paragraph 11A of the SOC, the representation made by Irene to Chan and Wife was that if the annual net profit of the Business could not reach at least AU$700,000 per year, Chan and Wife could return the Business to Irene.  However, as pleaded in paragraph 57 (X) of the SOC, Irene allegedly represented to Chan and Wife that if “the Plaintiff” (without specifying whether this was Chan, or the Wife) “could not manage the Business”, they could return the Business to Irene. The representation as pleaded in paragraph 57 (X) is accordingly wider, ie even if the annual net profit of the Business could reach AU$700,000, the Business could be returned to Irene, so long as Chan and Wife could not “manage” the Business for any reason.

33.  No submissions were made by Counsel, and no direct evidence has been given by Chan and Wife, that they could not in fact manage the Business, or that the representation pleaded in paragraph 57 (X) was untrue.  Counsel for Chan and Wife only referred to the Whatsapp messages exchanged between Chan and Irene on 28 August 2013, as evidence of the misrepresentation of the 2^nd Representation and Irene’s alleged refusal to return the Business.  However, Chan’s message of 28 August 2013 only referred to his “preparing for the worst”, of exchanging or returning the Business for lack of operating capital, and that the return of the Business “might be the best” for Irene and the Daughter.  That is not sufficient or unequivocal evidence of Chan having decided to return the Business, nor of his request for the Business to be returned to Irene - even if there had been any representation made by Irene, which had induced the 2012 Agreement and that the representation was untrue in any way. 

34.  In response to Chan’s message, Irene’s response was: “You are not solving the problem, merely being irresponsible…” In the same way as there was no request or demand for the transfer of the Business, there was no rejection of any request or demand. 

35.  In summary, I find that there is no pleaded case, and no evidence adduced, of the 2012 Agreement having been induced by the 1^st Representation or the 2^nd Representation - which are the only alleged misrepresentations relied upon by Chan and Wife as having induced the 2012 Agreement.  Nor is there any clear evidence of the representation referred to in paragraph 57 (X) being untrue.

Whether breach of contract

36.  Chan and Wife claim that Irene, the Son and the Daughter were in breach of the terms of the 2012 Agreement, in failing to hand over jewellery stock of the Business to the value of HK$30.5 million (paragraph 37, SOC), and in failing to transfer or hand over the Business on 10 September 2012 (paragraphs 38 and 46, SOC) in accordance with clause 6 of the 2012 Agreement. They claim that it was an implied condition of the 2012 Agreement that the Lease of the Business would be transferred to Chan and Wife simultaneously with the transfer of the Business by 10 September 2012, but that the Lease was not in fact transferred.  They also claim that only 40% of the shares in Jasny had been transferred to Chan.

37.  Chan’s case on breach is that under paragraph 2 of the 2012 Agreement, the stated price of the transfer of the Business was HK$38.5 million, expressed to include the “wholesale price” of the jewellery stock of HK$30.5 million, and that completion of the transfer of the Business was to take place by 10 September 2012. 

38.  In support of its case of breach of contract, Chan relies on the fact that according to the financial statements of Jasny for the year ended 30 June 2012, the value of its inventory was only AU$1,355,000 (equivalent to approximately HK$10.9 million), far less than HK$30.5 million. 

39.  On the pleadings and the evidence adduced at trial, I reject the claims of breach of contract.  The following are my reasons.

40.  Firstly, whatever was the intention and meaning of the homemade 2012 Agreement in writing, which referred to the sale and business of “company shares” (and would not require a transfer of the Lease as there would not be any change in the identity of the tenant, which would remain Jasny), it was pursuant to and in purported performance of the 2012 Agreement (which on the Plaintiffs’ pleaded case was to give effect to the Oral Agreement) that Irene, the Son, Chan, Jasny and Lucky Australia signed the Contract on 22 August 2012.  This was under legal advice, when Chan and his company Lucky Australia, named as purchaser and represented by lawyers (JY Legal), contracted to purchase “the Business”, stated to be Grand Jewellery, for the price of AU$300,000.  Chan was named as Guarantor in the Contract (for payment of the moneys payable to the vendor), and Jasny was named as the vendor of the Business.

41.  Clause 12 of the terms and conditions of the Contract states that the purchaser (namely, Lucky Australia) could not make a claim or rescind or terminate in respect of a representation about the Contract or the Business, not set out or referred to in the Contract.  Clause 29 of the terms and conditions set out provisions with regard to the transfer of the Lease, and for the purchaser’s right of rescission if the landlord does not consent to the transfer.

42.  It is not disputed that in November 2012, Chan and the Son then signed the Share Sale Agreement and the Supplemental Agreement in respect of the sale and purchase of all the shares in Jasny, initially for the stated price of AU$600,000, and subsequently varied to AU$120,000 (in February 2013, under the Variation Deed).  On Chan’s case, this was the result of the Defendants’ inability to procure the consent of the landlord to the transfer of the Lease.  Chan and Wife clearly consented to the arrangement reflected in, and the signing of, the Share Sale Agreement.  From the correspondence exchanged between the Australian lawyers for Jasny and the lawyers for the landlord of the Lease, which was copied to Chan and Wife, it would appear to be obvious that the Share Sale Agreement was signed in order to satisfy the landlord that the tenant and owner of the Business remained to be Jasny, and that there was no breach of the Lease as the landlord had claimed.  I also agree with Counsel for the Defendants, that if there was any breach of the Contract, only Lucky Australia as the purchaser named in the Contract has the right to claim breach.  Chan, Wife and Lucky have no locus to seek any remedy under the Contract, and Lucky Australia is not a plaintiff in these proceedings. 

43.  Further, if there was any breach of the express or implied terms of the 2012 Agreement or the Contract, that the Lease would be transferred to Chan and Wife by 10 September 2012, such breach must have been waived and/or replaced by Chan’s execution and the parties’ performance of the Share Sale Agreement.  As Counsel for the Defendants argued, the Share Sale Agreement was the parties’ substitution for the 2012 Agreement and Contract.  The Share Sale Agreement provides for the transfer of the shares in Jasny, and the implied condition of the 2012 Agreement relied upon by Chan and Wife is clearly inconsistent with the terms and provisions of the Share Sale Agreement.

44.  The parties did not dispute, in December 2012, that the Contract was rescinded.  The contemporaneous correspondence and in particular the letter of 6 December 2012 from the lawyers of Lucky Australia to Jasny’s lawyers confirmed this: by recording that “both vendor and the purchaser was (sic) mutually agreed to rescind the Contract for Sale of Business” (emphasis added), without any reference to the Defendants’ breach, and without any reservation as to the rights or remedies of Chan, Wife, Lucky or Lucky Australia for rescission on the ground of the Defendants’ alleged breach.  The letter of 6 December 2012 and the Share Sale Agreement were preceded by a letter dated 5 September 2012 from the Australian lawyers acting for Chan, Wife and Lucky Australia to the lawyers acting for the Defendants. In that letter, the Plaintiffs’ lawyers stated that after a discussion, the Defendants had agreed to the Plaintiffs’ proposal, that the Defendants should sell 40% of the shares of Jasny at the price of AU$300,000, Chan would act as director of Jasny, and upon agreement to these terms, the Contract was to be rescinded. This supports the Defendants’ claim, that the rescission of the Contract and the execution of the Share Sale Agreement in its stead were at the request of, and in any event agreed to by, Chan and Wife.

45.  Further, by the time of the signing of the Share Sale Agreement, Chan had already known (on his case by November 2012) that the value of the inventory stated in the financial statements of Jasny for the year ended 30 June 2012 was only AU$1,355,000.  If that is evidence of the Defendants’ breach (or fraud, or misrepresentation), in failing to hand over the Business at a value of HK$30.5 million (as Chan and Wife now allege), Chan had nonetheless signed the Share Sale Agreement for purchase of the shares in Jasny for AU$600,000, later varied to AU$120,000, without voicing any complaint. Chan’s execution of the Share Sale Agreement and his conduct in 2012, 2013 and 2014 were clearly inconsistent with his allegation that there was breach, or any misrepresentation, as to the value of the jewellery or the Business.

46.  Amongst other instances of Chan acting in a way to suggest that he had accepted the value of the Business and the Stock handed over to him in September 2012, Chan had written to Irene on 24 or 25 February 2014 (“25/2/14 Letter”).  The 25/2/14 Letter was dated 24 February 2014, but signed by Chan with the date “25/02/2014” written under his signature. In the 25/2/14 Letter, Chan made various demands regarding Irene’s performance of the transfer of the Business, and complained that the price of the inventory handed over to him was “abnormally low”, and bore a huge difference to what was actually in stock, which compelled him to take steps to raise the value of the stock. As Chan himself admitted in the course of cross-examination, he was complaining in the 25/2/14 Letter that the value of the stock as stated in Jasny’s inventory was exceptionally lower than what was actually in stock, or had been substantially suppressed.  This appears to totally contradict the claims now made by Chan in the proceedings, that the value of the Stock and inventory had been inflated in the 2012 Agreement, or that the value of Jasny’s stock was only worth AU$1,368,500 as shown in its financial statements of June 2012.  On the Defendants’ case, Chan’s statement in the 25/2/14 Letter supports their evidence that the actual jewellery in stock and handed over to Chan included Irene’s personal collection, over and above the value reflected in Jasny’s financial statements.

47.  The Plaintiffs’ claims of breach are also contradictory to, and unsupported by the express terms of the Share Sale Agreement.

48.  Under clause 4.3 of the Share Sale Agreement, Chan as the purchaser expressly warranted and represented to the Son as vendor, as a condition of the agreement, that prior to entering into the Share Sale Agreement, Chan had “undertaken a process of due diligence” and was aware of the financial position of Jasny and its business.

49.  Clause 7.3 of the Share Sale Agreement is an “entire agreement” clause, providing that the document was the entire agreement of the parties on the subject matter, that the only enforceable obligations and liabilities of the parties in relation to the subject matter are those that arise out of the provisions contained in the Share Sale Agreement, and that all representations, communications and prior agreements in relation to the subject matter were merged in and superseded by the Share Sale Agreement.

50.  It has to be emphasized that Chan, Wife and their company Lucky Australia were legally represented at the time of the signing of the Contract and the Share Sale Agreement.  If Chan and Wife had any genuine complaint with regard to the value of the Stock and the price to be paid for the shares in Jasny, or that they had been defrauded, it is incredible that they would fail to mention such grievance to their lawyers, and even more improbable that their lawyers would not have made provision for this but would instead agree to the terms and conditions set out in the Share Sale Agreement (in particular clause 4.3 thereof) which contradict the claims of breach now alleged by Chan and Wife.  Chan’s excuse, that he did not understand the Share Sale Agreement, is totally incredulous.  In any event, his lack of understanding of the terms and effect of a document to which he has put his signature is not a ground to disavow the document (Ming Shiu Chung v Ming Shiu Shum (2006) 9 HKCFAR 334).  Chan himself had been a real estate agent in Hong Kong for years and can hardly be said to be a novice in dealing with contracts and their binding effect.

51.  Chan’s claim, that the Contract had been formally rescinded by Chan and Wife on 6 December 2012 by reason of the Defendants’ breach, and his claim that the 2012 Agreement had already been validly rescinded, are further contradicted by the 25/2/14 Letter to Irene.  There, as Counsel for the Defendants sought to highlight, Chan was still insisting on and requiring Irene to complete the transfer of the Business by 31 March 2014.  This was after he had learnt that Jasny’s financial statements for June 2012 only recorded a value of HK$10.9 million for its inventory.

52.  In any event, there is no clear and satisfactory evidence that the value of the Stock, or of the Business handed over by the Defendants, is not of the value of HK$30.5 million. 

53.  Irene and the Daughter maintain that the jewellery handed over to Chan in September 2012 included not only the inventory of Jasny (as disclosed in Jasny’s balance sheet as at 30 June 2012), but also Irene’s personal collection of jewellery.  On their case, the Stock handed over to Chan on 3 September 2012 included the value of jewellery on the shop premises amounting to US$1,407,461.32 as recorded in Jasny’s “Excel” computer file system, and the value of jewellery amounting to US$2,502,795 as part of the stock of the Business as recorded in Jasny’s “Coffee” computer file system, the aggregate being US$3,910,256.30 which was equivalent to HK$30.5 million.  On the Daughter’s evidence, these figures and breakdown were recorded in a document produced to Chan (adduced in evidence at trial at page 191 of Bundle D4), and there had been no complaint made or dispute raised by Chan.  The essential figures were also referred to and relied upon by Chan himself, in a document Chan produced on 26 February 2013 for discussion with the Daughter.

54.  Chan maintained that as a layman and newcomer to the business, he knew nothing about the alleged value of the Stock, and had simply accepted the Daughter’s figures without expressing any agreement to such figures. 

55.  On the question of valuation of the Stock which was handed over by the Daughter to Chan on 10 September 2012, Chan and Wife sought to rely on the valuation made by Mr Lai Wing Kam (“Lai”).  Lai is the jewellery consultant employed by Jasny, who joined the company in 2012.  According to his evidence, the estimated price of the Stock is less than HK$30.5 million. This is Lai’s opinion, on the basis of his experience as a merchandiser of jewellery.  However, at no time have the Plaintiffs applied for or obtained the leave of the Court to adduce any expert opinion evidence.  I ruled at the trial that Lai’s evidence on the value of the Stock is inadmissible, and I so maintain.

56.  Chan also sought to place reliance on the alleged comment made by a member of his staff (“Mandy”), who had formerly worked under the Daughter, that the price of the Stock paid by Chan and Wife was “on the high side” (偏高).  Mandy has not given evidence on either fact or as to her alleged opinion (for which leave of the Court is required, but absent).  In any event, evidence that the price of the Stock stipulated in the 2012 Agreement was “on the high side” falls far short of proof that the value of the Stock had been fraudulently misrepresented by the Defendants.  The courts have never permitted a party to withdraw from a contractual bargain on the basis only that it was a bad commercial deal.  On the evidence, Chan and Wife contracted with Irene to purchase the Stock of the Business for HK$30.5 million. They chose so to do, willingly, without seeking expert advice on the value of the Business prior to their entering into the relevant agreements. As willing buyers, they have no basis to complain simply because they had agreed on a high price, even an exorbitant price, in the absence of any factors recognized in law as being capable of vitiating and affecting the validity of the agreements.

57.  It is not for the Defendants to prove that the Stock handed over by the Daughter to Chan, the receipt of which was acknowledged by Chan, was HK$30.5 million.  The persuasive burden of proof remains throughout on Chan and Wife, and they have not discharged such burden by any credible, and admissible, evidence.  They have failed miserably in proving the serious allegation they made, that the Defendants had fraudulently misrepresented the value of the Business and of the Stock.  Nor have they discharged their burden of proof as plaintiffs to establish that, in breach of the 2012 Agreement, the value of the Stock handed over on 10 September 2012 was not in fact HK$30.5 million. 

58.  As for the claim that the Defendants were in breach by only transferring 40% of the shares in Jasny, and failing to transfer the remaining 60% to Chan/Wife, the contractual documents and the evidence at trial clearly show that Share Sale Agreement and the Supplemental Agreement were signed in November 2012, to overcome the objection raised by the landlord to the transfer of the Lease and the landlord’s complaint of breach of the Lease.  The Share Sale Agreement provides for the transfer of 40% of the shares of Jasny from the Son to Chan, and the Supplemental Agreement expressly provides for a standard transfer form in respect of 60% of the issued capital of Jasny to be executed by the Son, with dates left in blank, to protect the interests of Chan.  The transfer form for 60% of the shares in Jasny had been signed in blank by the Son in November 2012, and sent to the Australian lawyers acting for the Defendants.  On the Defendants’ evidence, the blank transfer form was in the possession of Jasny’s accountants.  In cross-examination, Chan did not dispute that he had the transfer form for the 60% of the shares in Jasny, but had on his own decision failed to take steps to register the transfer.

59.  In support of the Defendants’ case, that the Contract had been replaced by the parties’ execution and performance of the Share Sale Agreement and the Supplemental Agreement, the Australian lawyers acting for Chan and Wife at the material time wrote on 6 December 2012 to the lawyers for the Defendants, confirming that both the vendor and purchaser had “mutually agreed” to rescind the Contract (for the sale of the Business).  If the Share Sale Agreement and the Supplemental Agreement had not been performed to the satisfaction of Chan and Wife, it is incredible that their lawyers would have confirmed in writing that the Contract for the sale of the Business could be rescinded by the parties’ mutual consent.

60.  On the evidence, since the handover on 3 September 2012, Chan has been the sole person managing the business and affairs of Jasny.  Since 3 September 2012, approximately 50% of the stock of Jasny has been sold in the course of its business.  A number of Jasny’s staff have been changed by Chan and after commencement of these proceedings, Chan has relocated the Business of Jasny.  The Defendants have not in any way been involved in the operation or management of Jasny, its affairs, or the Business.

61.  I see no basis on the entirety of the evidence to find that the Defendants were in breach of the 2012 Agreement, by only transferring 40% of the shares in Jasny to Chan.

Conspiracy

62.  On Closing, no submissions were made by Counsel for Chan and Wife as to the claims of conspiracy and collusion.  The only submissions made by Counsel on the claim of fraudulent misrepresentation were on the basis of the 1^st Representation and the 2^nd Representation.  Having rejected these claims of fraudulent misrepresentations as unproved, I likewise dismiss the claims of conspiracy and collusion to defraud, which are premised on the fraudulent misrepresentations alleged.

Conclusion on the Plaintiffs’ claims

63.  Counsel for Chan and Wife have not in Closing pursued their claims in respect of the layby, the alleged tax liability in respect thereof, and the allegedly illegitimate source of the Stock, which claims are all dismissed.

64.  The Plaintiffs’ pleaded claims of misrepresentation, conspiracy, collusion, and breach of contract are all dismissed as unproved.  In view of the lack of evidence, these pleaded claims should never have been made, and the costs of the original action should be borne by the Plaintiffs and paid on an indemnity basis.

Counterclaim

65.  The transfer of the Business or of the shares in the company holding the Business as contemplated under the 2012 Agreement (“Transfer”) was in consideration of the transfers of the landed properties from Chan and Wife, the purchase price for the Transfer being funded in the manner devised and agreed between the parties, as set out in paragraph 5 of this Judgment.  A loan agreement in writing was signed between Irene and Lucky with regard to the Loan, and for repayment of the Loan by monthly instalments, as also reflected in paragraph 3 of the 2012 Agreement.

66.  In respect of the Consignment referred to in paragraph 4 of the 2012 Agreement, separate loan agreements in writing were also signed on 11 May 2012, between Irene, Chan and Wife with regard to an admitted debt of HK$4.5 million, and between Irene and Wong with regard to an admitted debt of HK$4 million, to represent the value of the Consignment entrusted to Chan and Wife (“Mortgage Debt”), both loans expressed to be repayable by monthly instalments, and were secured by mortgages over the KK Properties. 

67.  Having found the 2012 Agreement to be valid and to have been performed, and having dismissed the claims made by Chan and Wife for rescission, the consideration for the Transfer must be paid by Chan and Wife.  Of the Loan which was to be advanced by Irene, and which was in fact set off from the amount due from Chan and Wife to Irene as the Consideration under the 2012 Agreement, a sum of HK$5,475,000 remains unpaid.  The liability for the monthly repayment of the Loan was in fact acknowledged and admitted in writing, in a document dated 11 March 2013 signed by Chan and Irene.

68.  The fact that no payment had changed hands (apart from the HK$100,000 paid by Chan and Wife to Irene on 6 April 2012) under the agreements for the transfer of the landed properties (and for the transfer of shares in Jasny) was envisaged and agreed upon by the parties under the scheme devised and accepted by them for the method of payment of the Consideration under the 2012 Agreement, and cannot be used now to avoid liability.

69.  I therefore find that Chan and Wife are to pay to Irene the outstanding balance of the Loan, of HK$5,475,000.

70.  As for the Consignment and the Mortgage Debt totaling HK$8.5 million, the Defendants rely on a written agreement signed by Chan and Irene on 11 March 2013 (“Settled Account”) as to how the Consignment was to be treated.  The Daughter admits that she had retrieved or taken away 270 taels of the gold which was unsold from the Consignment, and the Settled Account recorded the parties’ agreement on the value of the remaining 130 taels of the gold consigned, at the agreed market price of US$1950 per tael (the Daughter’s evidence is that she had used a round up figure of US$2000 per tael), arriving at a total value of HK$1,977,300 for the balance of the gold consigned.  On the Daughter’s calculation, she arrived at an aggregate figure of US$540,000 (or HK$4,212,000) as the value of the gold removed by her from the Consignment.  This amount was deducted from the value of the Consignment (of HK$8.5 million) as stated in paragraph 4 of the 2012 Agreement, and Chan agreed to pay the balance of the Loan and for the remaining Consignment, which was treated as sold outright to Chan, by monthly instalments as set out in paragraphs 1 and 2 of the Settled Account.  The parties’ agreement to the values is evidenced by Chan’s signature to the Settled Account.

71.  On the Defendants’ pleaded case, the amount to be paid by Chan under the Settled Account is US$287,607 (acknowledged in paragraph 1 of the Settled Account), interest thereon at 8% per annum from 1 February 2014, HK$1,977,300 as the agreed value of the balance of the Consignment treated as sold to Chan under the Settled Account (referred to in paragraph 2 of the Settled Account), and interest on HK$1,977,300 at 8% per annum from 1 September 2013 (in accordance with paragraph 2 of the Settled Account).

72.  The Settled Account is signed by Chan and I see no basis to find that he should not be bound thereby.  I accept the evidence and explanations of the Defendants with regard to the Settled Account, and make an order in terms of the preceding paragraph.

Disposition

73.  All the claims made by Chan and Wife in the original action are dismissed, with costs on an indemnity basis. 

74.  On the Counterclaim, the defendants by counterclaim are to pay to Irene the sum of HK$5,475,000, and the amounts set out in paragraph 71 above.  Irene is to submit a draft order in relation to the relief she seeks concerning the security for the unpaid portion of the Mortgage Debt.  The costs of the Counterclaim are to be paid by the defendants by counterclaim to Irene.